Corporate Social Responsibility and Cost Stickiness

Abstract

This article examines the effects on cost stickiness of firms’ involvement in corporate social responsibility (CSR) activities. Cost stickiness represents asymmetric cost behavior whereby the magnitude of cost increases in response to an increase in the activity level is greater than the magnitude of cost decreases with a decrease in the activity level. We hypothesize that CSR involvement requires ongoing investments in value-creating activities; hence, it is difficult to scale down committed resources instantly even when the activity declines. We use two different CSR proxies and find support for the CSR-related cost stickiness hypothesis. We further decompose CSR into strategic and tactical CSR and find that cost stickiness is more pronounced for strategic CSR. Finally, we examine the CSR-related cost behavior pattern across business cycles and find some evidence of cost stickiness during an expansionary phase of the economy and cost anti-stickiness during a recessionary phase but only for the tactical CSR component.